Investors flee from risk and sell … gold?

The global flight from risk knocked precious metals again on Friday, with gold falling below $650 an ounce for the first time in three weeks as shaky global stock markets prompted investors to reduce positions in commodities.
Investors often buy gold as a safe bet when financial markets look unstable, but investors are keen to unload the metal after plunges in global equity markets this week, analysts said.

So much for that “flight from risk” argument that I and a lot of other people have been making. Or maybe it’s just that gold has gotten so expensive that now it’s risky. In any case, it’s a nice lesson in the dangers of offering any explanation for the behavior of financial markets.

To trot out another fine quote from philosopher/derivatives trader Nassim Nicholas Taleb‘s soon-to-be-published book The Black Swan (he’s writing about the insanity that enveloped his native Lebanon in the early 1980s):

Much of what took place would have been deemed completely crazy with respect to the past. Yet it did not seem crazy after the events. This retrospective plausibility causes a discounting of the rarity and conceivability of the event. I later saw the exact same illusion of understanding in business success and the financial markets.